Note 11 - Derivative Financial Instruments

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

11. Derivative Financial Instruments

At

March 31, 2018

and

December 31, 2017,

the Company’s derivative financial instruments consist of interest rate swaps. The Company’s interest rate swaps are used for

three

purposes:

1

) to mitigate the Company’s exposure to rising interest rates on a portion (

$18.0

million) of its floating rate junior subordinated debentures that have a contractual value of

$61.9

million, at

March 31, 2018

and

December 31, 2017;

2

) to mitigate the Company’s exposure to rising interest rates on certain fixed rate loans totaling

$281.6

million and

$280.2

million at

March 31, 2018

and

December 31, 2017,

respectively; and

3

) to mitigate exposure to rising interest rates on certain short-term advances totaling

$441.5

million at

March 31, 2018

and

December 31, 2017.

At

March 31, 2018

and

December 31, 2017,

we held derivatives designated as cash flow hedges, fair value hedges and certain derivatives

not

designated as hedges.

The Company’s derivative instruments are carried at fair value in the Company’s financial statements as part of Other Assets for derivatives with positive fair values and Other Liabilities for derivatives with negative fair values. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or

not

it qualifies and has been designated as a hedge for accounting purposes, and further, by the type of hedging relationship.

At

March 31, 2018

and

December 31, 2017,

derivatives with a combined notional amount of

$36.3

million were

not

designated as hedges. At

March 31, 2018

and

December 31, 2017,

derivatives with a combined notional amount of

$263.3

million and

$261.9

million were designated as fair value hedges. At

March 31, 2018

and

December 31, 2017,

derivatives with a combined notional amount of

$441.5

million were designated as cash flow hedges.

For cash flow hedges, the effective portion of changes in the fair value of the derivative is reported in AOCL, net of tax, with the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. Amounts in accumulated other comprehensive income are reclassified into earnings in the same period during which the hedged forecasted transaction effects earnings. During the

three

months ended

March 31, 2018,

$0.3

million was reclassified from accumulated other comprehensive loss to interest expense.

Changes in the fair value of interest rate swaps

not

designated as hedges are reflected in “Net gain/loss from fair value adjustments” in the Consolidated Statements of Income.

The following table sets forth information regarding the Company’s derivative financial instruments at the periods indicated:

	March 31, 2018					December 31, 2017
	Notional		Net Carrying			Notional		Net Carrying
(In thousands)	Amount		Value (1)			Amount		Value (1)
Interest rate swaps (fair value hedge)	$	253,784	$	13,179		$	199,341	$	6,971
Interest rate swaps (fair value hedge)		9,508		(99	)		62,564		(921	)
Interest rate swaps (cash flow hedge)		441,500		8,675			250,000		417
Interest rate swaps (cash flow hedge)		-		-			191,500		(7	)
Interest rate swaps (non-hedge)		36,321		(1,554	)		36,321		(2,830	)
Total derivatives	$	741,113	$	20,201		$	739,726	$	3,630

( 1 ) Derivatives in a net positive position are recorded as “Other assets” and derivatives in a net negative position are recorded as “Other liabilities” in the Consolidated Statements of Financial Condition.

The following table sets forth the effect of derivative instruments on the Consolidated Statements of Income for the periods indicated:

	For the three months ended
	March 31,
(In thousands)	2018		2017
Financial Derivatives:
Interest rate swaps (non-hedge)	$	1,276	$	232
Interest rate swaps (fair value hedge)		454		(66	)
Net gain (1)	$	1,730	$	166

( 1 ) Net gains and losses are recorded as part of “Net gain/loss from fair value adjustments” in the Consolidated Statements of Income.

During the

three

months ended

March 31, 2018

and

2017,

the Company did

not

record any hedge ineffectiveness.

The Company’s interest rate swaps are subject to master netting arrangements between the Company and its

two

designated counterparties. The Company has

not

made a policy election to offset its derivative positions.

The following tables present the effect of the master netting arrangements on the presentation of the derivative assets and liabilities in the Consolidated Statements of Condition as of the dates indicated:

	March 31, 2018
							Gross Amounts Not Offset in the Consolidated Statement of Condition
(In thousands)	Gross Amount of Recognized Assets		Gross Amount Offset in the Statement of Condition		Net Amount of Assets Presented in the Statement of Condition		Financial Instruments		Cash Collateral Received		Net Amount
Interest rate swaps	$	21,854	$	-	$	21,854	$	-	$	20,940	$	914

							Gross Amounts Not Offset in the Consolidated Statement of Condition
(In thousands)	Gross Amount of Recognized Liabilities		Gross Amount Offset in the Statement of Condition		Net Amount of Liabilities Presented in the Statement of Condition		Financial Instruments		Cash Collateral Pledged		Net Amount
Interest rate swaps	$	1,653	$	-	$	1,653	$	-	$	-	$	1,653

	December 31, 2017
							Gross Amounts Not Offset in the Consolidated Statement of Condition
(In thousands)	Gross Amount of Recognized Assets		Gross Amount Offset in the Statement of Condition		Net Amount of Assets Presented in the Statement of Condition		Financial Instruments		Cash Collateral Received		Net Amount
Interest rate swaps	$	7,388	$	-	$	7,388	$	-	$	3,660	$	3,728

							Gross Amounts Not Offset in the Consolidated Statement of Condition
(In thousands)	Gross Amount of Recognized Liabilities		Gross Amount Offset in the Statement of Condition		Net Amount of Liabilities Presented in the Statement of Condition		Financial Instruments		Cash Collateral Pledged		Net Amount
Interest rate swaps	$	3,758	$	-	$	3,758	$	-	$	-	$	3,758